Here is an interesting article about the three phases of Lutheranism. The Three Lutheranisms.
It seems to me that all three types of Lutheranism need each other. I am afraid, though, that Bob Benne, the friend mentioned at the end of the article, may be right (to a certain degree). It does seem to me as well that Lutheranism (the church Luther started) is dying, but I would have to disagree that it is "an exhausted tradition." Luther's theology has influenced and continues to influence almost all Christians in the modern world, even the Catholic Church. From a questioning of the immaculacy of scholasticism to a re-emphasis on Christology, the Bible, unmerited Grace, and the suffering God of the cross, the Church (particularly the post-conciliar Church) has adopted much of Luther's earliest reforms. This is because, in the midst of corruption, the Church had forgotten what she had always believed to be true. I tend to think of Luther as a man who tried to reform the Church from the inside. It is the early Luther whom I like because he is what I call a "noble heretic". He spoke out against corruption in the church because he "[could] do no other". Luther urged everyday lay Catholics to make the faith their own.
However, Luther did not see the real evil in the Church. The real evil was the fact that the pope had political power, land, and was basically a monarch. It is because the Church was tied to the state (the Holy Roman Empire) that there was so much corruption. As seen in the Joint Agreement on Justification signed by the Lutheran World Federation and the Catholic Church in 1999, both churches agree that Grace is unmerited. There are of course theological differences as I pointed out in a previous post (Concupiscence as Defined by Catholics and Protestants), but Luther was excommunicated mainly because he was seen as a political threat to Pope Leo X (who was quite a pathetic Catholic anyway).
But Luther did not understand the evils of state-church. He fell into the same trap. Luther's Lutheran Church was the German state church, established in solidarity with the HRE princes. It is this state-church that saw its own demise during World War II when the Nazis took over the church. German Lutherans reasoned that to be German meant that you were Lutheran (in the same way that many English reason that to be English means that you are Anglican). It was natural that a German would be a Lutheran, without even a personal appropriation of faith. Hitler exploited the Lutherans' weak faith. Hitler questioned the Germans understanding of being German. Who is the true German? For, only the true German could be a true Lutheran. And didn't Luther himself condemn Jews in his last years? (A very physically sick and depressed Luther believing the world was soon coming to an end unfortunately promoted violent antisemitism towards the end of his life). Dietrich Bonhoeffer and Karl Barth spoke out against this claim, but their pleas often fell on deaf ears. The story of the German Lutheran Church is not just a Lutheran phenomenon as mentioned earlier. The Catholic Church also fell into this trap, but the Catholic Church was not established as a state-church and was able to escape, not unscathed. There are still Catholic nations especially in Latin and South America that tend to see Catholicism as an ethnicity as opposed to faith in Jesus Christ. History bears witness to the fact that state-church promotes "couch-potato" Christianity at best and a "demonic" church at worst. Lutheranism, if it will survive, will have to reject Luther's idea of a state-church. Maybe, the Lutheranism experienced in America is the best alternative. But what is a Lutheranism that is not affiliated to the state?